Good to Great

Reader Steve McLaughlin writes with this review: "'Built to Last' was one of the most significant business books of the nineties, but the book didn't leave much hope for companies that got off to a less-than-ideal start. What if your company wasn't lucky enough to be founded by the likes of David Packard, Sam Walton, or George Merck? Jim Collins throws these businesses a life raft in his new book 'Good to Great: Why Some Companies Make the Leap ... and Others Don't'. Read on for the rest of Steve's take on the book.

Good to Great: Why Some Companies Make the Leap ... And Others Don't
author	Jim Collins
pages	320
publisher	HarperCollins
rating	8
reviewer	Steve MacLaughlin
ISBN	0066620996
summary	Tracking down the elusive factors that make a business do more than succeed.

Good to Great is the result of an intensive five-year project that took Collins and his team of researchers more than 15,000 hours of work to complete. The team read and coded 6,000 articles, generated more than 2,000 pages of interview transcripts, and created 384 megabytes of computer data in the process. Their findings are presented in a thought provoking book that answers the one question Built to Last never tackled: "Can a good company become a great company and, if so, how?"

From this perspective, Good to Great can really be seen as a prequel to Built to Last. It's about how good companies can become great ones whereas Built to Last is a book about how already great companies built an enduring "iconic stature." Collins and his team of researchers began their search by sorting through a list of 1,435 Fortune 500 companies and applied rigorous criteria to find businesses that made the leap from good to great.

At the core of Collins's criteria was that a good-to-great company had to have "fifteen-year cumulative stock returns at or below the general stock market, punctuated by a transition point, then cumulative returns at least three times the market over the next fifteen years." The screening process cut the 1,435 down to 126, then 19, and finally these 11 companies: Abbott, Circuit City, Fannie Mae, Gillette, Kimberly-Clarke, Kroger, Nucor, Philip Morris, Pitney Bowes, Walgreens, and Wells Fargo.

What, no General Electric? Where's 3M or Hewlett Packard? These stalwarts of Built to Last didn't even come close to making the final cut. Consider, for example, that from "December 31, 1975, to January 1, 2000, $1 invested in Walgreens beat $1 invested in technology superstar Intel by nearly two times, General Electric by nearly five times, and Coca-Cola by nearly eight times." Good to Great then goes beyond the numbers to explain why these companies were able to make the leap to greatness.

Good to Great does an excellent job of diagramming the framework of how these companies were able to make the good-to-great leap. Essentially all of these companies experienced a period of buildup followed by breakthrough, and all of this was fueled by something Collins calls "The Flywheel Effect." The Flywheel Effect reflects a "cumulative process -- step by step, action by action, decision by decision, turn by turn of the flywheel -- that add up to sustained and spectacular results." These companies got knocked around now and then, but they always got back up and opened for business the next day.

Eventually these good-to-great companies picked up enough forward momentum to make the leap. Collins and his team were able to find six disciplines that each of these companies shared that helped them make the leap. Rather than use their oftentimes buzzword-ish terms I thought I would translate them into plain English.

During the buildup phase the people that led these companies were more like Lincoln and Socrates than Patton or Caesar. Collins dismisses the notion that only companies led by dictators and hard-asses could succeed, and that to be successful leaders need to check their egos at the door. Employees, partners, shareholders, and customers prefer leaders that are "more plow horse than show horse." Is Larry Ellison listening?

Collins and his team also found that these good-to-great companies made sure they had their ducks in a row before making a move. These companies "first got the right people on the bus, the wrong people off the bus, and the right people in the right seats and then they figured out where to drive it." Again, this flies in the face of how a lot of companies behave. Many companies make the mistake of putting their master plan together, and then finding the right people to execute the plan. Hiring bright people is pointless if you've already done the thinking for them.

Good to Great also notes that during the buildup period not everything is going to go your way, but you need to keep the faith. This is probably the key discipline to keep that flywheel going, and at the same time the most nebulous. Collins explains how these companies were able to face the brutal facts of their situation and trudge on, but I'm not so sure this isn't a suicide mission for some companies.

Confront the Brutal Facts (Yet Never Lose Faith) means facing the reality of your current situation and keeping the faith at the same time. The Stockdale Paradox (named after former POW Admiral Jim Stockdale) is used to illustrate the need for companies to face the facts and simultaneously keep the faith. Good to Great stresses the importance of asking the tough questions and creating an environment where the truth can be heard.

Once the good-to-great companies made the leap, they learned some new tricks that kept them on top. One of the most important is doing what you do best, and avoiding the things you don't. This sounds obvious, but we all know companies that took their eyes off the ball and then failed. Collins makes the important point that "stop doing" lists are more important than "to do" lists. Stop paying people to do things half-assed. Stop offering services in markets you know nothing about. And stop buying into every new fad technology that hits the market.

This leads to Good to Great's take on technology. Collins and his team found that "technology by itself is never a primary root cause of either greatness or decline." Great companies avoid technology fads and only use it to increase (not create) their momentum. I found the following passage to be one of the more memorable passages from the book:

"No technology, no matter how amazing -- not computers, not telecommunications, not robotics, not the Internet -- can by itself ignite a shift from good to great. ... No technology can instill the simple inner belief that leaving unrealized potential on the table -- letting something remain good when it can become great -- is a secular sin."

Good to Great wraps up by giving readers plenty of detailed explanations, diagrams, and examples straight from the companies themselves. And if you're one of those people who like to see the data, then don't worry about that either. Collins has included a comprehensive appendix to the book that includes answers to common questions, charts, an explanation of the selection process, and data uncovered during the research for the book.

Built to Last was an excellent book, but I think Good to Great does it one better. The question it tackles applies to a wider audience, and its findings are something every business can use. The language is clear and if you get off track or need a refresher then just flip to the chapter summaries for guidance.

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You can purchase this book at Fatbrain. Would you like to see your book review here?

Re:384mb? Depends on the content...

[Lispy]

Exactly.
Sure you can fill your HD with loads of Mp3s or ripped Movies, but creating that much of edited text, or sourcecode or any other form of valuable information is wayyy different...

Alright, said that i'll go and complete my collection of futurama episodes...mjammjam...

Lispy

OT: business book recommendation...

[Cally]

I know this is off-topic & will be modd'd as such - but just wanted to spread the, uh, Good News according to Rageboy [rageboy.com].
An excellent business book - the best book on the practice of Good Marketing I've ever read in fact - is
[amazon.com]
Gonzo Marketing: Winning through Worst Practices.

It's also very entertaining, and geek-friendly in terms of it's approach to the topic and attitude towards mega-corp mass marketing. I'd say it was in tune with the general Slashdot consensus on such things, as well as managing to be thought provoking and highly stimulating. I haven't read anything that made me physically bounce up and down so much since, oooh, "Mastering Algorithms with Perl" ;)

We now return you to the topic.

Advice to the Not Listening

[1alpha7]

Many companies make the mistake of putting their master plan together, and then finding the right people to execute the plan. Hiring bright people is pointless if you've already done the thinking for them.

More advice the PHBs of the World will never be able to see. Maybe such analytical advice will fall on the fertile soil of the next generation.

1Alpha7

Re:Advice to the Not Listening

[Proud Geek]

It sounds like really bad advice to me. It describes a million dot coms, most of which are dead by now. VA Whatever is a great example of a company that acquired good people then got them to direct its operations. They have changed focus, and are on the fast track to bankruptcy.

It makes complete sense. Different people do different things well, and if you have a potpurri of good people, you'll be a jack-of-all-trades and master of none. To excel, finding the right people to execute the plan is the right thing to do. Get the people who can think about what your business needs, not about what they would focus on if they were running your business.

Re:Advice to the Not Listening

[ccf]

I think the point is to have an over-arching vision before you start hiring people, so you have SOMETHING to hire them for, but not to necessarily work out every detail of that vision. You should have a core philosphy, a core idea of This Is What Company X Is About, this is What We Do Well. But leave it up to the smart employees as to how they want to implement it. If the leadership is good and the plan is sound, the smart people will catch on quickly to how they can advance the project.

You do make a good point though, one that the article glossed over.

Re:Advice to the Not Listening

[erc]

It sounds like really bad advice to me.

That's because you missed the point.

It describes a million dot coms, most of which are dead by now.

Not at all.

The point the author was trying to make is, you don't hire a bunch of bright people, put them in a room, and then say, "here's this extremely detailed plan on how to get from point A to point B, written by people who haven't a clue but who were roommates in college, and we don't need your input, just execute this plan." I've seen CEOs of failed companies telling programmers how to write code. I saw this same CEO tell people "we're going to use Java and Perl for everything", not even considering if Java an Perl were appropriate for the task, and then telling people who questioned, "I hired you to execute the plan!" This sort of stupidity is what ruins companies.

Don't make the mistake of drawing up detailed, step-by-step plans, hiring bright people, and expecting them to "just execute the plan". If you want that, go hire people who used to work for McDonald's serving coffee. Instead, draw up general plans, then ask those bright people you just hired how to make it happen. That's what you hired them for, isn't it?

Not more management bilge

[mummers]

Lord save us all from CEO's with bright ideas, cos' no one else is going to...

Something to strive for?

[imrdkl]

From the review: all of this was fueled by something Collins calls "The Flywheel Effect."

This is interesting analogy. Now if business could just achieve perpetual motion [geocities.com]... that would impress me.

Artificial Criteria

[[e-mail]]

At the core of Collins's criteria was that a good-to-great company had to have "fifteen-year cumulative stock returns at or below the general stock market, punctuated by a transition point, then cumulative returns at least three times the market over the next fifteen years.

Ok, so this immediately disqualifies any business started in the last 30 years.

And it also disqualifies any company where the startup period took less than 15 years.

And it also disqualifies any company where the rise was less sudden or less dramatic.

Is it any wonder that very few companies fit this particular mold? And is it the right mold?

And which is the better company, one that sucked for 15 years, then got the right break and performed 3x the market for 15 years, or one that say, has merely done 1.5x the market for 100 years? And which is likely to have just as sudden a decline?

As near as I can see these are all questions left unanswered...

Re:Artificial Criteria

[SimplyCosmic]

The title of the book is " Good to Great: Why Some Companies Make the Leap ... and Others Don't ", which would by definition disqualify the theoretical company you mention which does 1.5 x the market over 100 years.

The main premise of the book, from just this review, seems to be an in depth study of companies that were good (but not great) and then changed something or other and became great.

Now, in order to help justify the idea that these were actually only 'good' companies prior, and not just in a slump or other short-term performance variance, they limited the companies chosen to those who performed that way for an extended length of time. Additionally, you'd need almost as long of 'great' performance to ensure that their changes were the actual source of their new success, and not just a fluke that could be corrected over the short term.

But that's just my guess, having not actually read more than this review.

Re:Artificial Criteria

[[e-mail]]

My observation are:

1. They seem to be implying that the only way to get from good to great is to leap.
2. That great is defined as 3x market performance for 15 years. Of course, this asks the questions:
   1. Is greatness defined by stock price?
   2. Is 15 years a relevant period of time? It's been said that the difference between Americans and Europeans is that Europeans think 100 miles is a long ways and Americans think 100 years is a long time!

Re:Artificial Criteria

[Dr. Cam]

Don't confuse the tools with the product. The findings themselves, and their consistency across organizations, are the important results.

In order to do a study like this, you have to set some clear and strict criteria, just to get a manageable data set. You also need to establish a good baseline, and as someone has pointed out in another thread, you have to watch the results for a comparable period of time to ensure that the changes in the organization's culture and processes are effective.

Microsoft and Oracle, for example, may not exist in twenty years, successful as they are now. If you look at the Fortune 500 for 1981, you'll see very few of those organizations that exist now. Twenty years in a business sense is nothing, when there are commercial organizations that have been around for several hundred years (I can think of one - HBC - whose charter was granted in 1670).

Re:Artificial Criteria

[whosit]

That is what the other book "Built to Last" addressed.

One point glossed over in the review:

[DerekLyons]

In both Built to Last and in Good to Great the authors show the long term effects of a *slow start*. It takes months and years to build a team from scratch, develop your corporate culture, and battle-test yourself in the real world. (Actually, several battles, learning from each one.) Many of these companines started with rather small enterprises and capital investment. (Even when corrected for inflation.)

Another interesting point is that it's not always the founders that make the leap. Quite often it's the second or third generation of management that take a good company, and makes it great based on the foundations built before. Sometimes by taking the company in a new direction, sometimes by adding synergistic business activites, sometimes just adding the critical refining touches to an existing business. There is no sure route.

Most interesting to me, both of these conflict directly with the current paradigm, grab a visionary, throw money at him, stand back and watch the pile grow. Visionaries may not have the management [1] experience to lead a company, and the market today insists that you must start big and grow bigger.

[1]Yes, I know the standard /. take on 'management', but it's brutal fact that few companies grow without some from of management. Even /. relies on it's 'authors' to choose which stories will best match the theme of the site and interest it's users. That's management folks..

Microsoft, corporate competitors, and Open Source

[Infonaut]

Well put.

Both books point to the idea that a business is actually a culture. Taking it further, you could say that a business is a society of its own, to a certain degree.

Is Ellison creating a structure that can survive after he leaves? Is Jobs? The jury is still out, but whether we like it or not, Microsoft has created an internal culture, a society that cultivates leaders who are watch makers rather than clock-watchers.

It makes me wonder if ultimately Open Source might be the only culture currently capable of taking on Microsoft over the long haul. With the notable exceptions of Linus, ESR, and Stallman, there are few Open Source "leaders" who capture the popular imagination.

The Open Source movement took quite some time to germinate. Its approach is incremental, much like the flywheel described in Good to Great. Because Open Source as a movement isn't dependent on the success of individual companies making profits, perhaps the current round of Open Source bashing is a bit premature.

Open Source has a much longer time horizon than most corporations. The development of OS software will continue, regardless of the success or failure of VA, RedHat, et. al. Ultimately, perhaps this is why Microsoft is so schizophrenic about Open Source. They realize that it may be the only culture that can compete effectively with theirs.

The problem of course being:

[Pointed Stick]

The problem with most of these books is that the right people never read them. Back in the days, when I was stuck working in "the cube" every time one of these books would come along, the company would purchase a copy for all of it's employees. The problem of course being: I'm only in charge of pushing around my pencil, the people who are truly capable of making changes never really do.

Cheers!

-Pointed Stick

Ideas about what makes a company great...

[WolfWithoutAClause]

It seems to me that ALL of these kinds of books are written by people who don't actually run businesses, or if they do actually successfully run a business, like book publishing [say, ;-)], then they try to apply the lessons learnt to every other business around; many of which may not be at all applicable.

Basically there's massive fashions in business, because nobody really knows what makes a business boom:

- merging
- spin-offs
- downsizing
- right sizing
- dot coms
- win-win
- seven habits
etc. etc.

If these patterns actually help the particular businesses they are applied to - that's great. But CEO's aren't always that clueful- being a CEO isn't easy; and they often bow to crowd pressure and follow a particular trend, sometimes to protect their own jobs, sometimes because they believe it is the right thing.

What?

[Anonymous Coward]

Collins and his team of researchers began their search by sorting through a list of 1,435 Fortune 500 companies

Riiight....

Statistically flawed?

[lukel]

At the core of Collins's criteria was that a good-to-great company had to have "fifteen-year cumulative stock returns at or below the general stock market, punctuated by a transition point, then cumulative returns at least three times the market over the next fifteen years." The screening process cut the 1,435 down to 126, then 19, and finally these 11 companies: Abbott, Circuit City, Fannie Mae, Gillette, Kimberly-Clarke, Kroger, Nucor, Philip Morris, Pitney Bowes, Walgreens, and Wells Fargo.

Isn't this like looking for talentless people who became millionaires and finding they bought lottery tickets, when in fact, buying lottery tickets tends to make people poorer?